GDT Auction Review: March 18, 2025

The March 18, 2025, Global Dairy Trade (GDT) auction continued the upward trajectory in dairy prices observed since the mid-August 2024 downturn. The GDT Price Index has surged approximately 30%, driven by robust global demand and tightening supply conditions, marking a bullish phase for the dairy sector.

Key Highlights

1. Whole Milk Powder (WMP): +0.2% to $4,052/MT
2. Skim Milk Powder (SMP): -0.4% to $2,729/MT
3. Butter: +1.1% to $7,667/MT
4. Anhydrous Milk Fat (AMF): -1.8% to $6,561/MT
5. Cheddar: +1.0% to $4,976/MT
6. Lactose: +0.5% to $1,165/MT
7. Mozzarella: +5.1% to $4,704/MT
8. Butter Milk Powder: Not available in this auction

This price escalation underscores a robust global appetite for dairy, particularly dairy fats and powders, against a backdrop of constrained supply.

Regional Buying Trends

Analysis of NZX and GDT data reveals distinct regional buying patterns:

• North Asia (32%) – Led by China, demand for WMP and infant formula remains strong, driven by rising incomes and dietary shifts.
• Europe (22%) – A stable market with consistent imports, favoring specialty products like organic and lactose-free dairy.
• Southeast Asia/Oceania (20%) – Increasing purchases of WMP, SMP, and cheese reflect Western dietary influences and fast-food expansion.
• Middle East (14%) – Strong demand for long-shelf-life products like UHT milk and powdered milk due to climatic conditions.
• South America (6%) & Africa (5%) – Moderate buying constrained by economic and logistical challenges.
• North America (1%) – Minimal participation due to domestic self-sufficiency.
• Temporal Trends

A stacked area chart from GDT and Westpac data highlights:

• North Asia: Consistently leads (30%-50%), with peaks in mid-2022 and early 2024 tied to holiday stockpiling (e.g., Chinese New Year).
• Southeast Asia & Middle East: Volatile, with spikes in late 2022 and mid-2024 linked to fluctuating oil revenues.
• Europe: Stable at 5%-15%, offering reliability rather than rapid growth.

These trends suggest Fonterra should prioritize North Asia’s steady demand, exploit volatility in Southeast Asia and the Middle East, and leverage Europe’s consistency.

Factors Driving Price Surges

1. Strong Demand from Asia

• China’s Role: North Asia’s 32% market share is largely driven by China, where urbanization and high-protein diets have boosted dairy imports. However, China’s “dual circulation” policy aims to enhance domestic production, potentially reducing import reliance over time. An aging population and government campaigns promoting dairy for the elderly sustain demand for WMP and fortified products.
• Southeast Asia: Fast-food penetration drives cheese and butter demand, while population growth supports SMP uptake.
• Europe: Steady imports reflect a preference for premium and sustainable dairy products.

2. Supply Constraints

• Weather Challenges: Droughts reduced New Zealand’s 2024 milk production by 2.5%, particularly in Waikato, while Europe’s summer heatwaves cut yields by up to 5% in France and Germany.
• Rising Costs: Energy price hikes, worsened by Eastern European conflicts, have increased processing and transport costs. Feed and fertilizer prices have also risen sharply, pressuring farm margins.
• Labor Shortages: Post-pandemic migration limits have caused a 10-15% workforce gap in New Zealand and Australia, hindering production capacity.

3. Currency & Geopolitical Stability

• Weaker US Dollar: A 10% depreciation historically lifts dairy prices by 5-7%, enhancing affordability for non-US buyers. This trend supports the current surge.
• Geopolitical Risks: Stability has aided trade predictability, but risks loom—South China Sea tensions could disrupt shipping, while US-China trade disputes or the Ukraine conflict may raise costs via tariffs or energy price volatility.

Implications for Fonterra and the Dairy Market

1. Benefits for Fonterra & Farmers

• Higher Farmgate Milk Prices: Revised forecast of NZ$7.90/kgMS boosts farmer incomes, supporting reinvestment.
• Financial Strength: Elevated GDT prices enhance Fonterra’s margins, providing capital for innovation.
• GDT Pulse Expansion: More frequent auctions improve market liquidity and responsiveness.

2. Risks & Challenges

• Economic Uncertainties: A potential slowdown in China or recessions in key markets could dampen demand.
• Supply Chain Vulnerabilities: Shipping delays, regulatory shifts, or climate disruptions remain threats.

Insights from Jordbrukare Market Analysis

• Tightening Supply: Production declines in New Zealand and Europe align with GDT trends, amplifying price pressures.
• Rising Input Costs: Persistent increases in energy, fertilizer, and feed costs challenge profitability.
• Sustainability Trends: Consumers and regulators (e.g., EU Green Deal, China’s carbon goals) demand eco-friendly practices. Fonterra’s 30% emissions cut since 2015 and net-zero 2050 target position it well, but competitors like Danone (100% regenerative farms by 2030) are advancing.

Conclusion & Strategic Takeaways

The March 2025 GDT auction reflects a thriving dairy market, with prices at multi-year highs due to strong demand and limited supply. Fonterra’s GDT Pulse initiative demonstrates agility, but risks like geopolitical instability and supply chain fragility require proactive management.

Actionable Strategies:

• Leverage North Asia’s steady demand by securing long-term WMP supply contracts.
• Capitalize on Southeast Asia and Middle East volatility with targeted promotional campaigns and strategic partnerships.
• Strengthen sustainability credentials through accelerated carbon reduction and regenerative farming investments.
• Enhance supply chain resilience via diversified shipping routes and hedging against currency fluctuations.
• Invest in premium segments (organic, A2 milk, fortified dairy) to capture high-margin opportunities in Europe and North America.

The coming months will determine if this bullish momentum sustains, but for now, the dairy sector enjoys strong fundamentals amid a complex global landscape.